Fiduciary Issues That Could Reshape Advisor Industry Are 'Actively in Process'

Lawmakers are expressing deep concern about fiduciary issues that could reshape the advisor industry even as the head of the SEC took to Capitol Hill to defend the proposals.

Appearing before the House Financial Services Committee on Nov. 18, SEC Chairwoman Mary Jo White endorsed the uniform fiduciary standard for advisors and brokers, saying that those who serve retail customers should be held to the same standard of conduct.

She quickly noted, however, that she couldn't push through the initiative without the support of her fellow commissioners. She also declined to be pinned down on the timing of the proposed rule.

"I want to make clear at the outset… it will be ultimately a commission decision," White said, adding that she has directed staffers to develop a proposal that could eventually become a uniform fiduciary regulation.

"They're very, very actively working on it. It's complex. It's not quick," White said. "But we are working toward — you know, in the very short term — most of the details of what the proposal would be. Now that doesn't suggest in two months you're going to see a proposal. This is a long, complex exercise, and it has to involve the full commission."

White made it clear that the SEC isn't racing to the finish line, and she indicated that the staffers have made no determination of the potential impact a rule might have on the industry and the investing public.

"Part of the rulemaking as it advances will be very deep economic analysis by our economists at the SEC to judge impacts, as well as all relevant baselines," White said.

DEEP OPPOSITION

Several lawmakers registered their opposition to a separate fiduciary proposal under way at the Department of Labor, which has floated rules that would compel advisors working with retirement savers and plans to act as fiduciaries. This is a modification of the ERISA rules the department administers.

The most impassioned critique came from David Scott (D-Ga.), who charged the Labor Department with veering into an area under the SEC's jurisdiction. He warned that the proposed rules would leave millions of low-income Americans without access to retirement advice, disproportionately affecting African-Americans and other minorities. He suggested the Labor Department was encroaching on an SEC arena.

"Why are you allowing the Labor Department to take over your territory?" Scott asked.

"I don't view it that way," White responded. "We are separate agencies. They do have responsibility and statutory authority in the ERISA space. Even as we sit here now, brokers have to comply if they're in the ERISA space with the Department of Labor rules and ours."

In October, the House passed a bill authored by Rep. Ann Wagner (R-Mo.) that would bar the Department of Labor from proceeding with its fiduciary rulemaking until the SEC adopted the uniform standard for broker-dealers and advisors. President Obama has endorsed the Department’s fiduciary proposal, and the White House has threatened to veto the Wagner bill if it made it to his desk.

CHANGES IN ADVISOR SPACE

There is a long list of initiatives that the commission is considering. In the advisor space, SEC staffers are working on recommendations for a rule that would require RIAs to put in place transition plans in anticipation of a major disruption of the practice. Additionally, staffers are looking into creating new requirements for stress testing that would apply to large investment advisors and investment companies.

As a practical matter, however, White's agenda at the commission could face political pressure, particularly on heavily lobbied issues like the uniform fiduciary standard.

At full capacity, the SEC consists of five commissioners. By the end of the year, it will be down to three. White demurred when asked whether she would agree to hold off on any "controversial" rulemakings until the two new nominees are confirmed, but indicated that the work of the commission should press ahead.

"Anything could be controversial," she said. "I do think we should proceed."